This is the first in a short series of forecasts from our Government Contracts partners on things to watch for in government contracts in Fiscal Year 2018. For more in-depth discussions of current events and trends, please join us for our inaugural MoForward Event on October 26th at the Tysons Corner Ritz Carlton. Click here for more information and to register for the event.
FCA Litigation, Post-Escobar, and Materiality
As we enter FY2018, we’ll continue to watch with interest as the district and circuit courts weigh in on FCA litigation issues in the wake of Escobar. In particular, we’ll be interested to see whether and how the courts deal with a fact pattern in which a contractor commits minor but repeated contract or regulatory violations. When, if ever, does such behavior cross the materiality threshold? And, as an all-important practical matter, at what stage in the litigation will this issue be resolved?
There is a major difference between winning an FCA case at the motion-to-dismiss stage and winning at summary judgment. The most obvious examples are the cost of the litigation – notably including discovery – and the balance of power in settlement negotiations. Many in the government contracts bar thought the Supreme Court’s Escobar decision gave contractors a better chance to win cases on summary judgment or at trial, but undermined their ability to succeed on a motion to dismiss. However, that has not proved to be entirely accurate; post-Escobar defendants have won a number of cases on motions to dismiss under the materiality standard.
As the law in this area continues to develop, it will be interesting to see whether defendants can prevail on motions to dismiss where they are alleged to have engaged in a pattern of repeated small violations of the contract or regulations. This may be an area in which the courts are hesitant to rely on the materiality standard prior to summary judgment. In some cases it will be sufficiently clear that repeated small violations are immaterial even when added together, but we suspect that, in many cases, courts will view this type of materiality analysis as so inherently fact-specific that it cannot be resolved on a motion to dismiss, without discovery.
Possible Protest Reform and Electronic Filing at GAO
Section 809 Panel Report and Proposed Changes to the Protest System
One of the more interesting things to watch in the bid protest world in 2018 will be the incoming reports and recommendations from the Section 809 Panel, and from the study required by Section 821 of the FY2017 National Defense Authorization Act (NDAA) as well as the interplay between those reports and proposed reform measures in the FY2018 NDAA.
The Section 809 Panel was created by the FY2016 NDAA, and is tasked with finding ways to streamline and improve the entire defense-acquisition process, including bid protests. During the past two years, the panel has worked to develop recommendations for regulatory and statutory changes to meet these goals. In addition, in Section 885 of the FY2017 NDAA, Congress mandated a specific study “on the prevalence and impact of bid protests on Department of Defense acquisitions, including protests filed with contracting agencies, the Government Accountability Office, and the Court of Federal Claims.” Both the Section 809 Panel and the Section 885 study are due to Congress in FY2018, and should be studied closely by industry and practitioners alike.
In addition, the Senate has once again proposed significant changes to the protest process in Section 821 of the FY2018 NDAA. One of the most noteworthy changes proposed in Section 821 would require payment of costs for denied protests. This could mean that, if passed, a contractor who filed a GAO protest on a contract with the Department of Defense (DOD) and is unsuccessful must pay the DOD’s costs for defending the protest.
The changes could also modify the protest system so that, when an incumbent contractor protests an award and loses, the incumbent would not get the fees associated with any bridge contract or temporary contract extensions awarded to the contractor as the result of a delay in award resulting from the filing of such protest. Furthermore, those withheld fees could be paid to the new awardee, even though the new awardee had not done any work on the contract.
These provisions are almost identical to those proposed by the Senate, but changed in conference in favor of the study, in last year’s NDAA. Once again this year, the Senate version is the only version to contain such dramatic proposals, with the House bill silent on protest issues. Given the fact that Congress has not yet received the results of the Section 809 Committee, let alone the study mandated by the FY2017 NDAA, there is hope that cooler heads will once again prevail during conference to allow Congress to hear those results before making any changes.
GAO Electronic Protest Docketing System (EPDS)
On a more practical level, the GAO will be rolling out its new electronic filing system in the near future. The electronic filing system has been in the works during the several years since Congress mandated that they implement one.
Although the GAO has not announced a firm start date, a pilot program to allow everyone to begin getting familiar with the system is imminent. The pilot program will start with filings after an initial protest has been filed, and will likely begin with parties that are very familiar with protest processes and procedures at the GAO before expanding to others. Once the system is fully “live,” however, all protesters will be required to use the system to file new protests, and to pay the $350 filing fee. https://www.gao.gov/legal/bid-protest-notices/about
One of the key benefits of electronic filing, from a protester’s perspective, may be that the system will provide automatic notification to the agency involved in a bid protest. This is significant, because it means that contractors will not need to file with the GAO any earlier than necessary in order to be eligible for a stay. As we have discussed previously, to be eligible for the automatic CICA stay in the context of a required debriefing, protests must be filed early enough to ensure that the GAO has time to notify the contracting agency within five days of the debriefing – notification of the protest by the protester is insufficient. What this has meant, practically speaking, is that to get a stay, protesters have often filed with the GAO on the fourth day after a debriefing or on the morning of the fifth day to allow GAO sufficient time to notify the agency by the end of business on the fifth day. The electronic filing system, however, will be set up so that notification from the GAO will be automatic once a protest is filed, and the protester will receive a notification that this notice has been made. This may allow protesters more comfort in filing a bit later in the day on the fifth day after a debriefing, and prevent some of the confusion new protesters may face in this regard.
As with any new system, however, there are bound to be bumps in the road. It will be important for contractors and practitioners to be watching for any issues that may arise when the system is first introduced. In addition, once the pilot program begins, anyone can register for sign-in credentials, even if he or she is not included in the initial pilot. It is advisable for practitioners to register for these credentials early, so that the registration is not one more step to take minutes before the first electronically filed protest is due.